Data & Research March 16, 2023

Women of Color Taking More Confident Approach to Financial Future

According to data from Edelman Financial Engines, 67% of women of color reported securing a better financial path than the one they saw growing up.

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New research shows women of color are forging their own financial narratives to create better outcomes than those of previous generations, according to a new report from Edelman Financial Engines that surveyed women of color in the U.S. on their financial goals.

The report found that 67% of women of color said they were actively making a more secure path. Among respondents, 50% expressed confidence in the direction their lives were heading.

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Edelman Financial Engines conducted an online survey of 2,000 men and women, ages 25-64, who identified as African American, Asian American, Hispanic, multiracial, and Caucasian. The interviews and mobile ethnographies surveyed more than 60 women from across the United States, also from various racial groups.

“Beyond the broader financial disparities women have traditionally encountered, those of color have faced additional obstacles, including larger wage gaps, a lack of tailored financial literacy resources, and a general lack of trust in the industry,” Rose Niang, director of financial planning at Edelman Financial Engines, said in a statement. “Despite these hurdles, our study reinforced a number of areas where progress is being made—specifically with developing greater financial confidence and a positive economic outlook.”

According to the survey, 48% of women of color reported feeling confident in meeting their long-term financial goals, compared with 38% of their white counterparts. Women of color were also more inclined to approach investing with a risk-taking mindset at 31%, compared with 23% of white women.

According to the research, women of color reported a relaxed or risk-taking mindset when it comes to financial planning, a reflection of greater confidence. In comparison, white women were more likely to report a disengaged mindset.

“I’ve taken the ‘I can do it’ attitude and have learned about investing, and I’m trying to grow my wealth little by little every year,” said Ashley, 28, one of the sources surveyed in the report.

However, women of color reported feeling significantly less confident when dealing with financial professionals, as 42% of respondents said they felt financial professionals did not take them seriously because of their race or gender, significantly more than other gender, racial and ethnic groups surveyed.

When working with a financial planner, 65% of women of color said they prioritized values and cultural alignment, and fully 91% expressed that someone who can understand their values and cultures was important in their choice of a financial adviser.

Women of color also indicated unique financial needs and priorities. They were more interested in having conversations about generational wealth, at 33%, compared with their white counterparts, at 16%. Women of color were also more likely to to prioritize financial support for family and friends, at 13%, versus 6% for white women.

“As women of color continue to take greater control of their own financial journeys, it’s more important for employers and planners to listen carefully and understand how to address their unique needs,” said Niang. “Having a wide array of solutions, and fostering open, honest discussions that educate without casting judgment can build confidence and lead to better outcomes, especially with underserved populations.”

The Markets March 16, 2023

SVB Collapse Likely to Discourage Rate Hikes

PGIM fixed income experts see a 25 basis point hike next week, no others this year as inflation is less of a risk than larger economic headwinds due to bank concerns.

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The collapse of Silicon Valley Bank last week had the most immediate impact on the tech startups that helped make it America’s 16th-largest bank. But the ripple from its collapse is likely to impact everyday Americans by way of the Federal Reserve’s interest rate decisions, previously driven by inflation, according to experts at PGIM Fixed Income.

The collapse of SVB on March 10 was not an outlier, but a sign that the bank’s lack of risk management practices—partly due to not adjusting for rising interest rates—were not unique in the market, Daleep Singh, chief global economist at PGIM Fixed Income, explained on a webinar Thursday.

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In fact, there were “well above” $600 billion in unrealized losses on securities holdings across the U.S. banking sector by the end of last year, as people took out funds to take advantage of better yields from risk-free securities, according to the Newark, New Jersey-based firm, which manages $1.2 trillion in assets.

By the end of 2022, only about half of the total deposits in the U.S. banking system were insured by the Federal Deposit Insurance Corp., leaving almost $10 trillion in uninsured deposits, according to PGIM. That understanding by the Federal Reserve, U.S. Treasury and FDIC made them act quickly to create a Treasury-backed emergency facility to keep banks from having to sell long-term bonds at a steep loss to meet withdrawal demands, Singh explained.

“Even if your neighbor is smoking in bed and puts their own house on fire, firefighters will still come to put out it out to make sure the whole neighborhood doesn’t burn down,” he said.

What the Federal Reserve did not do, Singh emphasized, was adjust its balance sheet policy or signal any change to its interest rate trajectory. Whether that situation changes will depend on whether banks properly use the credit facility to stymie any further issues. That is no guarantee, Singh said, considering that at-risk small banks make up 40% of all lending in the U.S.

“The net impact on credit could be negative,” he said.

Singh believes the Federal Reserve will slow interest rate hikes despite a continued risk of inflation and a relatively strong job market. “We’ll get the final 25 [basis points] hike from the fed next week … and that will be the last in the cycle,” he predicted.

Overall, the economist noted three reasons he sees a stop to rate hikes following the SVB and New York-based Signature Banks collapses. The first is that tighter credit conditions will substitute for tighter monetary policy. The second, he said, is the threat of having to rescue the banking sector yet again after doing so during the financial crisis more than a decade ago. Finally, he noted that the risk of tightening the economy too much has shifted to doing too little to avoid a widespread contagion.

“I think it’s certainly possible, definitely desirable, to separate interest rate policy from financial stability policy,” Singh said.

Overall, large banks should be safer from collapse, as any outflows they see will likely be replaced by people leaving smaller firms for their relatively safer option, David Del Vecchio, co-head of U.S. investment grade corporate bonds at PGIM Fixed Income, said on the webinar.

“The large-money bank will be on the receiving end of some deposits,” he said. “They will be more likely to receive funds from some of these other institutions.”

Economist Singh said the banking sector is definitely not out of the clear.

“It’s not yet clear we are only dealing with a liquidity issue in the banking sector,” he said. “Illiquidity can lead to insolvency, in which case the Fed cannot control that, and other measures will need to be taken.”

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